Word: volckerism
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Whatever happens to the economy in 1981 will depend to a large degree on the actions of the Federal Reserve Bank and its controversial chairman, Paul Volcker. As the nation's central bank, the Federal Reserve regulates the availability of both money and credit in the economy, which helps determine the level of interest rates for borrowers and lenders alike. In October 1979, the Fed announced that it was scrapping its traditional inflation-fighting tactic of trying to regulate overall economic activity by manipulating interest rates within a narrow and relatively low range. The bank decided instead to attack...
...TIME board last week split sharply over whether that new approach is working, and there was also disagreement about whether Volcker will continue to pursue it in the new Administration taking office next month. Democrat Eckstein wondered about how many more times the Fed will feel compelled to "beat the economy about the head" before people believe that the bank is serious about controlling the money supply. Eckstein jokingly asked whether the Federal Reserve's vacillating policy of first tight money and then loose money was creating "the six-month business cycle," alternating between boom and bust...
Once again, moreover, the man on the spot is Federal Reserve Chairman Paul Volcker, whose 13-month-old effort to wrestle down inflation by gaining firm control of the money supply has helped roil up interest rates and keep the economy off balance. In recent months, Volcker has come under attack from the left and the right. While liberals accuse him of being too zealous in his struggle to hold the growth of money to below 6½% during 1980, conservatives have rapped Volcker for consistently failing to hit his target...
Testifying on Capitol Hill last week, Volcker said he wishes that the Federal Reserve had done better at anticipating the latest money supply surge, which was fueled by the Government's need to finance the large budget deficit and by a burst of business and consumer borrowing that began at about midsummer. But in both his congressional testimony and statements to reporters, Volcker left no doubt that the Fed intends to continue "consistently and unambiguously" to restrain money and credit. Not only did he strongly deny reports that he was planning to resign before his term expires...
...Volcker says he can live with tax reductions, if coupled with spending cuts, but he also emphasizes that the Federal Reserve could not be counted on to pump money and credit into the economy to finance a widening federal deficit should recovery spur renewed inflationary momentum in the meantime. Said he during his congressional testimony: "I have spoken before about the potential for collision and conflict between restrained monetary growth and the financial needs of an expanding and inflating economy. Recent developments provide a taste of the potential problem." In short, unless Government under a Republican Administration proves better able...